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                            ARCADIA FINANCIAL LTD.
                                       
                       1992 DIRECTOR STOCK OPTION PLAN
                        (As Amended January 27, 1999)


     1.   PURPOSE OF THE PLAN.  The purpose of this 1992 Director Stock 
Option Plan, initially adopted by the Board on January 7, 1992, is to attract 
and retain the best available individuals to serve as Directors of the 
Company, to provide additional incentive to the Outside Directors of the 
Company to serve as Directors, and to encourage their continued service on 
the Board.

     The Company intends that the options granted hereunder shall not 
constitute incentive stock options within the meaning of Section 422 of the 
Internal Revenue Code of 1986.  The Plan is intended to comply with the 
requirements of Rule 16b-3 under the Exchange Act.

     2.   DEFINITIONS.  As used herein, the following definitions shall apply:

          (a)  "BOARD" shall mean the Board of Directors of the Company.

          (b)  "COMMON STOCK" shall mean the Common Stock, $.01 par value per
     share, of the Company.

          (c)  "COMPANY" shall mean Arcadia Financial Ltd., a Minnesota
     corporation.

          (d)  "COMMITTEE" shall mean a committee of the Board appointed by the
     Board to administer the Plan.

          (e)  "CONTINUOUS SERVICE AS A DIRECTOR" shall mean the absence of any
     interruption or termination of service as a Director.  Continuous Service
     as a Director shall not be considered interrupted in the case of sick
     leave, military leave, or any other leave of absence approved by the Board
     or Committee.

          (f)  "DIRECTOR" shall mean a member of the Board. 

          (g)  "EMPLOYEE" shall mean any person, including officers and
     Directors, employed by the Company or any Parent or Subsidiary of the
     Company.  The payment of fees to a Director shall not be sufficient in and
     of itself to constitute "employment" by the Company.

          (h)  "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
     amended.

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          (i)  "OPTION" shall mean a stock option granted pursuant to the Plan.

          (j)  "OPTIONED STOCK" shall mean the Common Stock subject to an
     Option.

          (k)  "OPTIONEE" shall mean an Outside Director who receives an option.

          (l)  "OUTSIDE DIRECTOR" shall mean a Director who is not an Employee.

          (m)  "PARENT" shall mean a "parent corporation," whether now or
     hereafter existing, as defined in Section 424(e) of the Internal Revenue
     Code of 1986, as amended.

          (n)  "PLAN" shall mean this 1992 Director Stock Option Plan.

          (o)  "SHARE" shall mean a share of Common Stock, as adjusted in
     accordance with Section 12 of the Plan.

          (p)  "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
     or hereafter existing, as defined in Section 424(f) of the Internal Revenue
     Code of 1986, as amended.

     3.   STOCK SUBJECT TO THE PLAN.  Subject to the provisions of Section 12 
of the Plan, the maximum aggregate number of shares which may be optioned and 
sold under the Plan is 840,000 shares of Common Stock.  The shares may be 
authorized, but unissued, or reacquired Common Stock.

     If an Option expires or becomes unexercisable for any reason without 
having been exercised in full, the unexercised Shares which were subject 
thereto shall, unless the Plan has been terminated, become available for 
future grant under the Plan. If Shares which were acquired upon exercise of 
an Option are subsequently repurchased by the Company, such Shares shall not 
become available for future grant under the Plan.

     4.   GRANTS OF OPTIONS.  All grants of Options hereunder shall be made 
strictly in accordance with the following provisions:

          (a)  Intentionally omitted.

          (b)  Each Outside Director, including persons who are Outside
     Directors on the date of adoption of the Plan, shall be automatically

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     granted an option to purchase Shares (the "First Option") upon the date on
     which such person first becomes an Outside Director, whether through
     election by the shareholders of the Company or appointment by the Board to
     fill a vacancy.  The number of Shares constituting the First Option shall
     be determined based upon the calendar year in which the Outside Director
     first becomes an Outside Director, as follows:

<TABLE>
<CAPTION>
         Calendar Year               Option Shares
         -------------               -------------
<S>                                  <C>
             1992                        15,000
             1993                        15,000
             1994                        15,000
             1995                        15,000
             1996                         5,000
             1997                        25,000
             1998                        25,000
       1999 and thereafter         Annual Grant Amount
</TABLE>

     ; provided however, if an Outside Director first becomes a director on any
     day of the calendar year other than the first day thereof, the number of
     shares constituting the First Option shall be reduced prorata based upon 
     the days elapsed in such year as of the date he or she becomes a director.

     For each calendar year commencing with 1999, the Board of Directors shall
     each year prior to the date of the annual meeting of the Company for such
     year determine the number of Shares which shall constitute the Options to 
     be granted to each Outside Director for such calendar year (the "Annual 
     Grant Amount").  The Annual Grant Amount as so determined shall be the 
     number of Shares granted as to both First Options and Annual Options 
     granted during such calendar year.

          (c)  Each calendar year after the First Option has been granted to an
     Outside Director, such Outside Director shall be granted an Option (the
     "Annual Option") on the Grant Date (as hereinafter defined) to purchase the
     number of Shares to be determined based upon the calendar year in which the
     Grant Date occurs, as follows:

<TABLE>
<CAPTION>
         Calendar Year              Option Shares
         -------------              -------------
<S>                               <C>
             1992                       15,000
             1993                       15,000
             1994                       15,000
             1995                       15,000
             1996                        5,000
             1997                       25,000
             1998                       25,000

<PAGE>

      1999 and thereafter         Annual Grant Amount
</TABLE>

     As used herein, as to each Outside Director the term "Grant Date" shall 
     mean as follows: (i) for calendar years 1993 through 1997, the anniversary 
     date of the date of the grant of the First Option to such director; (ii) 
     for the calendar year 1998, January 25, 1998; and (iii) for the calendar 
     year 1999 and thereafter, such date as determined by the Board of Directors
     as the Grant Date for such calendar year in conjunction with its 
     determination of the Annual Grant Amount for such year.

          (d)  Each Outside Director who is an Outside Director on January 2,
     1997, shall be automatically granted on such date an Option to purchase
     10,000 Shares.

          (e)  Each Outside Director who is an Outside Director on January 20,
     1999 and who has had an Option granted prior to January 1, 1996 expire
     without exercise prior to January 20, 1999 (an "Expired Option"), shall be
     granted on January 20, 1999 an Option (the "Replacement Option") to replace
     each such Expired Option.  Each Replacement Option shall (i) be for 15,000
     shares; (ii) have a term equal to the number of days determined by
     deducting the number of days from the grant date of the Expired Option to
     January 20, 1999 from 3,650 days; and (iii) shall have an exercise price
     per share equal to the exercise price of the Expired Option.  

          (f)  Notwithstanding anything to the contrary contained herein, in no
     event shall an Outside Director be granted Options to purchase in the
     aggregate more than 250,000 Share pursuant to the Plan.

          (g)  Notwithstanding the provisions of Sections 4(b), (c) and (d) 
     hereof, in the event that a grant would cause the number of Shares subject 
     to outstanding Options by Outside Directors plus Shares previously 
     purchased upon exercise of Options by Outside Directors to exceed 840,000 
     Shares, then each such automatic grant shall be for that number of Shares
     determined by dividing the total number of shares remaining available for
     grant by the number of Outside Directors on the automatic grant date.  Any
     further grants shall then be deferred until such time, if any, as
     additional Shares become available for grant under the Plan through action
     of the shareholders to increase the number of Shares which may be issued
     under the Plan or through cancellation or expiration of Options previously
     granted hereunder.

     5.   Option Terms and Conditions.  The terms and conditions of an Option
granted hereunder shall be as follows:

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          (a)  subject to Sections 12 and 13 hereof, the term of each Option
     (other than a Replacement Option) shall be ten (10) years.  Any Option
     granted prior to January 1, 1996 and not exercised or expired as of January
     20, 1999 shall be amended to extend the term thereof to ten (10) years from
     the date of the original grant date thereof.

          (b)  subject to Sections 12 of 13 hereof, the term of each Replacement
     Option shall be equal to the number of days determined by deducting the
     number of days from the grant date of the related Expired Option to January
     20, 1999 from 3,650 days.

          (c)  each First Option and each Annual Option shall become exercisable
     in full beginning on the first anniversary of the grant of the Option
     provided in each case that the Outside Director shall have maintained
     Continuous Service as an Outside Director throughout such 12-month period. 
     Each Replacement Option shall be exercisable in full on the grant date
     thereof.

          (d)  the Option shall be exercisable only while the Outside Director
     serves as an Outside Director of the Company, and for a period of two (2)
     years after ceasing to be an Outside Director pursuant to Section 10(b)
     hereof.

          (e)  except as provided for a Replacement Option in Section 4(e), the
     exercise price per Share shall be 100% of the fair market value per Share
     on the date of grant of the Option, as determined in accordance with
     Section 9(a) hereof.

          (f)  the effectiveness of any Options granted hereunder is conditioned
     upon shareholder approval of the Plan in accordance with Rule 16b-3 under
     the Exchange Act.

     6.   ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.

          (a)  ADMINISTRATION.  Except as otherwise required herein, the Plan
     shall be administered by the Board or a Committee.

          (b)  POWERS OF THE BOARD OR COMMITTEE.  Subject to the provisions and
     restrictions of the Plan, the Board or Committee shall have the authority,
     in its discretion: (i) to determine the Annual Grant Amount and the Grant
     Date for each calendar year after 1997; (ii) to determine, upon review of
     relevant information and in accordance with Section 9(a) hereof, the fair
     market value of the Common Stock; (iii) to interpret the Plan; (iv) to
     prescribe, amend and rescind rules and regulations relating to the Plan;
     (v) to authorize any person to execute on behalf of the Company 

<PAGE>

     any instrument required to effectuate the grant of an Option hereunder; 
     (vi) to accelerate the exercise date of any Option granted hereunder; and 
     (vii) to make all other determinations deemed necessary or advisable for 
     the administration of the Plan.

          (c)  EFFECT OF BOARD'S DECISION.  All decisions, determinations and
     interpretations of the Board or Committee shall be final and binding on all
     Optionees and any other holders of any Options granted under the Plan.

          (d)  SUSPENSION OR TERMINATION OF OPTION.  If the Board or Committee
     reasonably believes that an Optionee has committed an act of misconduct, it
     may suspend the Optionee's right to exercise any Option pending a
     determination by the Board or Committee (excluding the Outside Director
     accused of such misconduct).  If the Board or Committee (excluding the
     Outside Director accused of such misconduct) determines that an Optionee
     has committed an act of embezzlement, fraud, dishonesty, nonpayment of an
     obligation owed to the Company, breach of fiduciary duty or deliberate
     disregard of the Company's rules resulting in loss, damage or injury to the
     Company, or if an Optionee makes an unauthorized disclosure of any Company
     trade secret or confidential information, engages in any conduct
     constituting unfair competition with respect to the Company, or induces any
     party to breach a contract with the Company, neither the Optionee nor the
     Optionee's estate shall be entitled to exercise any Option whatsoever.  In
     making such determination, the Board or Committee (excluding the Outside
     Director accused of such misconduct) shall act fairly and shall give the
     Optionee an opportunity to appear and present evidence on the Optionee's
     behalf at a hearing before the Board or Committee.

          (e)  DATE OF GRANT OF OPTIONS.  The date of grant of an Option shall,
     for all purposes, be the date determined in accordance with Section 4
     hereof, notwithstanding the fact that an Optionee may not have entered into
     an option agreement with the Company on such date.  Notice of the grant of
     an Option shall be given to the Optionee within a reasonable time after the
     date of such grant.

     7.   ELIGIBILITY.  Options may be granted only to Outside Directors.  All
Options shall be granted in accordance with the terms set forth in Section 4
hereof.  The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which a Director or the Company
may have to terminate such Director's directorship at any time.

     8.   TERM OF PLAN.  The effective date of this Plan is January 7, 1992, the
date upon which it was adopted by the Board.  The Plan shall continue in 

<PAGE>

effect for a term of ten (10) years unless terminated sooner under Section 13 
hereof.

     9.   FAIR MARKET VALUE AND FORM OF CONSIDERATION.

          (a)  FAIR MARKET VALUE.  The fair market value per share shall be
     determined as follows:  

               (i)      if the Common Stock is listed on a national securities
          exchange or admitted to unlisted trading privileges on such exchange,
          the fair market value on any given day shall be the closing sale price
          for the Common Stock on such day, as reported in the Wall Street
          Journal or other newspaper of general circulation;

               (ii)     if the Common Stock is not listed on a national
          securities exchange, the fair market value on any given day shall be
          the closing sale price for the Common Stock on the NASDAQ National
          Market System on such day, as reported in the Wall Street Journal or
          other newspaper of general circulation;

               (iii)    if the Common Stock is not listed on a national
          securities exchange, is not admitted to unlisted trading privileges on
          any  such exchange, and is not eligible for inclusion on the NASDAQ
          National Market System, the fair market value on any given day shall
          be the average of the closing representative bid and asked prices on
          such day, as reported on the NASDAQ System, and if not reported on
          such system, then as reported by the National Quotation Bureau, Inc.
          or such other publicly available compilation of the bid and asked
          prices of the Common Stock in any over-the-counter market on which the
          Common Stock is traded; or

               (iv)     if there exists no public trading market for the Common
          Stock, the fair market value on any given day shall be an amount
          determined by the Board or Committee in such manner as it may
          reasonably determine in its discretion, provided that such amount
          shall not be less than the book value per share as reasonably
          determined by the Board or Committee as of the date of determination
          nor less than the par value of the Stock.

          (b)  FORM OF CONSIDERATION.  The consideration to be paid for the
     Shares to be issued upon exercise of an Option shall consist entirely of
     cash or such other form of consideration as the Board or Committee may
     determine, in its sole discretion, to be appropriate for payment, including
     but not limited to other shares of Common Stock having a fair market value
     on the date of surrender equal to the aggregate exercise price of 

<PAGE>

     the Shares as to which the Option is exercised, or any combination of such
     methods of payment.

     10.  EXERCISE OF OPTION.

          (a)  PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.  Any Option
     granted hereunder shall be exercisable at such times as are set forth in
     Section 5 hereof.  An Option may not be exercised for a fraction of a
     Share.

     An Option shall be deemed to be exercised when written notice of such
     exercise has been given to the Company in accordance with the terms of the
     Option by the person entitled to exercise the Option and full payment for
     the Shares with respect to which the Option is exercised has been received
     by the Company.  Full payment may consist of any consideration and method
     of payment allowable under Section 9(b) hereof.  Until the issuance (as
     evidenced by the appropriate entry on the books of the Company or of a duly
     authorized transfer agent of the Company) of the stock certificate
     evidencing such Shares, no right to vote or receive dividends or any other
     rights as a shareholder shall exist with respect to the Optioned Stock,
     notwithstanding the exercise of the Option.  A share certificate for the
     number of Shares so acquired shall be issued to the Optionee as soon as
     practicable after exercise of the Option. No adjustment will be made for a
     dividend or other right for which the record date is prior to the date the
     stock certificate is issued, except as provided in Section 12 hereof.

     Exercise of an Option in any manner shall result in a decrease in the
     number of Shares which thereafter may be available, both for purposes of
     the Plan and for sale under the Option, by the number of Shares as to which
     the Option was exercised.

          (b)  TERMINATION OF STATUS AS A DIRECTOR.  If an Optionee ceases to
     serve as a Director, the Optionee may, but only within two (2) years after
     the date the Optionee ceases to be an Outside Director of the Company,
     exercise his or her Option to the extent the Optionee was entitled to
     exercise it at the date of such termination.  To the extent that the
     Optionee was not entitled to exercise an Option at the date of such
     termination, or if the Optionee does not exercise such Option within the
     time specified herein, the Option shall terminate.

          (c)  DEATH OF OPTIONEE.  In the event of the death of an Optionee
     occurring:

               (i)    during the term of the Option, and provided that the

<PAGE>

          Optionee was at the time of death a Director of the Company and had
          been in Continuous Service as a Director since the date of grant of
          the Option, the Option may be exercised, at any time within six (6)
          months following the date of death, by the Optionee's estate or by a
          person who acquired the right to exercise the Option by bequest or
          inheritance, but only to the extent of the right to exercise that
          would have accrued had the Optionee continued living and remained in
          Continuous Service a Director for six (6) months after the date of
          death.

               (ii)   within thirty (30) days after the termination of
          Continuous Service as a Director, the Option may be exercised, at any
          time within six (6) months following the date of death, by the
          Optionee's estate or by a person who acquired the right to exercise
          the Option by bequest or inheritance, but only to the extent of the
          right to exercise that had accrued at the date of termination of
          Continuous Service as a Director.

     11.  NON-TRANSFERABILITY OF OPTIONS.  Without the prior written consent of
the Board, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

     12.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.  The number 
of shares of Common Stock covered by each outstanding Option, and the number 
of shares of Common Stock which have been authorized for issuance under the 
Plan but as to which Options have not yet been granted or which have been 
returned to the Plan upon cancellation or expiration of an Option, as well as 
the price per share of Common Stock covered by each such outstanding Option, 
shall be proportionately adjusted for any increase or decrease in the number 
of issued and outstanding shares of Common Stock resulting from a stock 
split, reverse stock split, stock dividend, combination or reclassification 
of the Common Stock, or any other increase or decrease in the number of 
issued shares of Common Stock effected without receipt of consideration by 
the Company; provided, however, that conversion of any convertible securities 
of the Company shall not be deemed to have been "effected without receipt of 
consideration." Such adjustment shall be made by the Board, whose 
determination in that respect shall be final, binding and conclusive.  Except 
as expressly provided herein, no issuance by the Company of shares of stock 
of any class, or securities convertible into shares of stock of any class, or 
options or rights to purchase shares of stock of any class shall affect, and 
no adjustment by reason thereof shall be made with respect to, the number or 
price of shares of Common Stock subject to an Option.

<PAGE>

     In the event of the proposed dissolution or liquidation of the Company, 
each Option will terminate immediately prior to the consummation of such 
proposed action, unless otherwise provided by the Board.  The Board may, in 
the exercise of its sole discretion in such instances, declare that any 
Option shall terminate as of a date fixed by the Board and give each Optionee 
the right to exercise his or her Option as to all or any part of the Optioned 
Stock, including Shares as to which the Option would not otherwise be 
exercisable.  In the event of a proposed sale of all or substantially all of 
the assets of the Company, or the merger of the Company with or into another 
corporation, the Option shall be assumed or an equivalent option shall be 
substituted by such successor corporation or a parent or subsidiary of such 
successor corporation.

     13.  AMENDMENT, TERMINATION AND APPROVAL OF THE PLAN.  The Board may at 
any time amend or terminate the Plan, except that the Board shall not amend 
the Plan more than once every six (6) months with respect to the provisions 
of the Plan relating to the amount, price, and timing of grants, other than 
to comply with changes in the Internal Revenue Code of 1986, the Employee 
Retirement Income Security Act of 1974, as amended, or the regulations 
thereunder.  No Option may be granted after the Plan is terminated.  The 
foregoing provisions of this Section notwithstanding, no amendment or 
termination shall, without the consent of the holder of an Option, alter or 
impair any rights or obligations under any Option theretofore granted under 
the Plan except as is permitted pursuant to Section 12 of the Plan.

     If any amendment to the Plan requires approval by the shareholders of 
the Company for continued applicability of Rule 16b-3 under the Exchange Act, 
or for initial or continued listing of the Common Stock or other securities 
of the Company upon any stock exchange, then such amendment shall be approved 
by the holders of a majority of the Company's outstanding capital stock 
entitled to vote.

     14.  CONDITIONS UPON ISSUANCE OF SHARES.  Shares shall not be issued 
pursuant to the exercise of an Option unless the exercise of such Option and 
the issuance and delivery of such Shares pursuant thereto shall comply with 
all relevant provisions of law, including, without limitation, the Securities 
Act of 1933, as amended, the Exchange Act, the rules and regulations 
promulgated thereunder, state securities laws, and the requirements of the 
NASD or any stock exchange upon which the Shares may then be listed, and 
shall be further subject to the approval of counsel for the Company with 
respect to such compliance.

     As a condition to the exercise of an Option, the Company may require the 
person exercising such Option to represent and warrant at the time of any 
such exercise that the Shares are being purchased only for investment and 
without any present intention to sell or distribute such Shares, if, in the 
opinion of counsel for the Company, such a representation is required by any 
of the 

<PAGE>

aforementioned relevant provisions of law.  Such Shares may also be issued 
with appropriate legends on stock certificates representing such Shares, and 
the Company may place stop transfer orders with respect to such Shares.

     Inability of the Company to obtain authority from any regulatory body 
having jurisdiction, which authority is deemed by the Company's counsel to be 
necessary to the lawful issuance and sale of any Shares hereunder, shall 
relieve the Company of any liability in respect of the failure to issue or 
sell such Shares as to which such requisite authority shall not have been 
obtained.

     15.  RESERVATION OF SHARES.  The Company, during the term of this Plan, 
will at all times reserve and keep available such number of Shares as shall 
be sufficient to satisfy the requirements of the Plan.

     16.  OPTION AGREEMENT.  Options shall be evidenced by written option 
agreements in substantially the form attached hereto or in such other form as 
the Board or Committee shall approve.

     17.  INFORMATION TO OPTIONEES.  The Company shall provide to each 
Optionee, during the period for which such Optionee has one or more Options 
outstanding, copies of all annual reports and other information which are 
provided to all shareholders of the Company.